Oracle, Montclair State University Settle Bitter Contract Dispute

Oracle settles prolonged battle over a failed $20 million PeopleSoft deployment out of court.

Oracle announced late Friday that a legal battle that erupted in 2011 with New Jersey's Montclair State University (MSU) over a failed ERP system deployment has been settled out of court.

"Montclair State University and Oracle America, Inc. are pleased to announce that they have amicably resolved their dispute," read a statement sent by Oracle that included both the Oracle and university logos. "Both entities are now looking toward the future of their relationship."

Terms of the settlement were not disclosed. A spokesperson in the University Counsel office reached by telephone said MSU would offer no comment on the deal.

The dispute, which was anything but amicable, began with MSU's original April 2011 suit, filed in the U.S. District Court for the District of New Jersey, in which it accused Oracle of breach of contract, gross negligence, willful misconduct and fraud tied to what was supposed to be a $20 million deployment of PeopleSoft ERP software.

The deployment got underway in 2009, but after a series of missed deadlines and disputes during the summer of 2010, the project came to a screeching halt in November 2010 when, MSU said, Oracle walked away from the project when the university refused to pay $8 million more than the agreed-upon implementation fee.

In a $5.3 million countersuit filed in May 2011, Oracle denied MSU's charges and asked the court judge to dismiss the claims of gross negligence and legal fraud. Oracle's countersuit charged that university officials "did not adequately understand the technology and the steps necessary to complete the project."

Instead of working out the problems of the contract, Oracle said the university's project leadership, "motivated by their own agenda and fearful of being blamed for delays, escalated manageable differences into major disputes." It branded MSU's suit a "misguided ruse which, unfortunately, is costing taxpayers of N.J. millions of dollars."

MSU upped the ante in December 2011 by amending its suit to add "intentionally false statements" and an effort to "extort millions of dollars" to the list of complaints. Judge Freda Wolfson handed Oracle a partial victory in September by dismissing MSU's claims of fraud and negligence, but Oracle still faced the university's breach of contract claims.

At the heart of the dispute was MSU's desire to keep deployment, administrative and upgrade costs down by avoiding software customization. That's an increasingly common approach, with organizations preferring to use configuration capabilities built into software -- particularly modern cloud-based software -- rather than adding custom code that might have to be tweaked or redeveloped from scratch with each and every software upgrade. But Oracle's PeopleSoft software, which was introduced 25 years ago, was originally developed to be highly customizable with PeopleTools for custom code development.

In its lawsuit, MSU said Oracle falsely stated that "95% of the University's more than 3,200 business requirements were satisfied by its base [PeopleSoft] system." But MSU said it later found that the software "did not contain all of the critical functionality which Oracle had represented it would contain."

MSU, New Jersey's second-largest public university, with more than 18,000 students, contracted with Oracle to replace a 25-year-old administrative system. The new system was intended to give students, faculty and administrators improved self-service access to information through a Web portal.

The project's scope was massive, including Oracle's PeopleSoft Financial Management System, Human Capital Management, Hyperion budgeting and planning software, CRM and Campus Solutions, Oracle Data Warehouse and Analytics, and the Oracle Enterprise Portal. Software fees totaled $4.3 million and the fixed fee for implementation was $15.75 million for a negotiated implementation time of 25 months -- a tall order for such an extensive list of deployments.

MSU stuck by its plan to deploy Oracle's software, but in its suit it said it would incur $10 million to $20 million beyond the original $20 million cost to complete the job with assistance from a third-party systems integrator.

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Enmity caused by a troubled ERP project? Brings me back to the good old, bad old days of IT when large, drawn-out enterprise software implementations brought down many a career. Just did a Google search on 'ERP failure' and got 7.5 million results. The project team at Montclair was right to be wary of customization, but, as we've seen time and again with ERP, the best laid plans don't always work. Software as a service's popularity is due in part to the difficulty businesses have had with do-it-yourself ERP.

In my view, Montclair State naively bit off more than it (or Oracle) could possibly chew in the time spelled out in the contract. PeopleSoft is pretty well known to be all about customization, so the university also didn't do its due diligence where this idea of getting it all "out of the box" was concerned. Buyer beware, especially when dealing with enterprise software salespeople known to over-promise and under deliver.

In addition to the author's warning below, I was struck in reporting on this suit (http://www.informationweek.com... that Montclair officials both naively and with nerve sued Oracle over the added implementation expense. Oracle counter-sued, as might be expected. But think of it. Oracle's stance in dealing with the customer in attempts to resolve issues, as related by Montclair officials in their complaint, seemed to treat the customer with some high handedness. Any customer, in the face of vendor belligerence, must not only face the prospect of a disrupted relationship and a failed project but also the expense of a counter suit. How many customers are going to sue in the face of those odds versus try for the best cooperation you can get and settle for it? I suspect the latter is more the rule in many of these disputes.